Downtown’s Draw Reaches Out West

June 3, 2016

Hip-hop mogul Russell Simmons toured local office spaces for nearly a year before picking a new spot for his online video network, All Def Digital, and deciding to leave tranquil Culver City for the urban vibe of downtown Los Angeles.

His company is following a steady stream of tenants migrating from the Westside over the past year, drawn by downtown’s reasonable rates and larger spaces.

“Tenants are exploring other markets because they need bigger space, and it’s always a price issue,” said Dan Gallup, a Cresa principal who helped All Def nab an eight-year lease for 26,200 square feet across from the Staples Center, nearly double its current size. “We looked all over the Westside, we looked everywhere. This building just seemed to be a good fit and the economics were a good fit, too.”

Downtown’s Class A rents run $3.47 a square foot on average, compared with $4.62 a square foot on the Westside, according to data from Jones Lang LaSalle.

But nonfinancial reasons were also at play.

“They were trying to find a good cultural match for their brand,” Gallup added.

The appeal of downtown’s density – which makes walking a viable option – is being buttressed by the construction of a slew of luxury apartments, the opening of hip restaurants, and access from elsewhere via public transit.

“People are drawn by transportation options, the abundance and quality of amenities that are in place,” said John Barganski, senior vice president for leasing at Brookfield Office Properties, downtown’s largest landlord.

The firm has leased about 200,000 square feet to newcomers to the neighborhood since the start of last year, according to Barganski. He estimated that other downtown buildings have easily leased an additional 250,000 square feet in that time to tenants drawn from other submarkets. The majority of relocating companies have come from the Westside, reflecting interest that has been building for several years, particularly among creative firms.

“It’s a much more desirous location for people who never considered it before,” he said. “And everybody, before they make a commitment, is at least checking it out.”

Creating space
Many new tenants come from the architecture and design services industries. Engineering and design firm DLR Group will soon consolidate its Santa Monica and Pasadena offices into a space at the Bloc tower on Seventh Street that’s being renovated by Ratkovich Co.

Adrian Cohen, a DLR senior principal, said the biggest attraction was the Expo Line light-rail station just outside the office’s front door, which could decrease the reliance of the firm’s employees on cars and gas.

“We design our projects to protect the environment,” Cohen said. “The one thing we need to do as a firm is provide a location where people have the option to take public transportation.”

The 35,000-square-foot space will comfortably fit the firm’s 145 L.A. employees by the time it opens in three months. And with staffers sharing desks, and perhaps bringing laptops to the rooftop garden, there will be room to grow. Once downtown, Cohen expects to cast a wider net for recruitment.

Radwan Madani, principal at commercial design firm Ware Malcombe, echoed Cohen’s thoughts on the positive impact a move downtown can have on hiring.

“For the architecture and engineering industry, typically the employees can’t really afford to live in West L.A.,” he said.

Ware Malcombe made the move in November, giving up a West L.A. office in favor of a central location on Wilshire Boulevard by the 110 freeway.

Just after the relocation, two staffers moved to live within walking distance of the office. The 3,200-square-foot space showcases the design it provides for clients, with open workstations and glass-walled conference rooms.

Creative companies are not the only ones heading east.

Law firm Fragomen Del Rey Bernsen & Loewy, for example, traded West Los Angeles for downtown last year, picking up 15,000 square feet at the Citigroup building on Flower Street.

Turning east
Mitú Inc. could be the next Westsider to take flight. The Santa Monica-based creator of media content targeted at Latino millennials is scouting for space in downtown, partially for the connection to Latino history and communities.

“It’s where the city was started … and it really feels more like home than where we are now,” said Roy Burstin, Mitú’s chief executive.

The move would also allow Mitú to create a gathering space for writers and video producers. While the online content firm’s office on Colorado Avenue spans 7,500 square feet with 60 employees, Burstin plans to add a few thousand more square feet to allow for production space and room to grow. The company would follow the varied tech and media companies that began to noticeably settle in downtown around 2013.

But Silicon Beach’s most powerful players have not joined the exodus. For tech firms such as Google Inc., Yahoo Inc., and Snapchat, downtown isn’t on the map. And most startups haven’t quite broken free of the Westside either.

“Tenants that are part of the Silicon Beach community generally prefer to remain in the area based on the synergy that small, fast-growing companies seek from the relative proximity to one another,” said Josh Gorin, a senior vice president at real estate services firm Savills Studley.

All Def executives did not respond to requests for comment about their move.

Over time, downtown might continue to feel ripple effects from the Westside, especially if emerging office hubs farther south, such as El Segundo, hit capacity, said Tucker Hughes, a managing director at Hughes Marino Inc.

“In time the south markets will fill up and commute times will be more favorable to move east, to downtown,” he said.